'Subsidiary Utilization' Causes Decline in SK's Value... Bad News for Chairman Chey Tae-won

Down More Than 10% Since Early This Month
103 Billion Won Housing Loan Maturity Approaching

As SK Group undergoes business portfolio rebalancing, the stock price of its holding company SK Inc. is plummeting. This is due to concerns that scenarios involving the use of subsidiaries, which serve as cash cows for the holding company, are being considered as candidates for rebalancing, potentially having a negative impact. Although the goal is to optimize overlapping businesses, the stock price decline is expected to be a setback for Chairman Chey Tae-won as well.

The stock price of SK Inc. has shown a more pronounced downward trend following the second trial ruling in the divorce lawsuit between Chairman Chey Tae-won and Noh So-young, director of the Art Center Nabi. It dropped more than 10%, from 178,800 KRW at the beginning of this month to 157,400 KRW as of the 25th.

The stock price decline is interpreted to be closely related to the group-level rebalancing scenario under review. SK Group is discussing the merger of Innovation and E&S, partial sale of SKIET shares, slimming down 219 affiliates, and adjusting the investment pace of battery material parts companies SKIET and SK Nexilis. Most of these are affiliates in which SK Inc. holds shares.

In particular, SK E&S is the cash cow (source of profit) for SK Inc. Over the past three years, SK E&S paid dividends of 730 billion KRW in 2019, 654.8 billion KRW in 2020, and 385.8 billion KRW in 2021. The dividend payout ratios were also high at 118.8%, 85.1%, and 112.1%, respectively. Most of the dividends were paid to SK Inc., which owns 90% of SK E&S shares.

SK plans to improve the financial situation of SK Innovation and SK On, which are pushing forward the battery business, through this business restructuring. While the long-term outlook suggests a rebound in the battery business, which would be positive for shareholders, it inevitably has a negative impact on the stock price in the short term.

[Image source=Yonhap News]

In particular, the rebalancing is directly burdensome for Chairman Chey. This is because the stock-backed loans (stock loans) he personally obtained have increased significantly this year.

As of April, Chairman Chey received stock-backed loans of 45 billion KRW and 58 billion KRW from Hana Securities and Daishin Securities, respectively, using his SK Inc. shares as collateral. As of December last year, his stock loan amount was only 65 billion KRW, but it increased by about 40 billion KRW in five months. The maturities of these loans are scheduled to come due sequentially next month and in September.

If SK Inc.'s stock price falls, Chairman Chey will have to provide more shares as collateral when refinancing the stock loans to repay the debt. The group’s rebalancing thus increases Chairman Chey’s financial burden.

Chairman Chey, who is currently appealing to the Supreme Court against the second trial ruling ordering him to pay 1.3808 trillion KRW in property division and 2 billion KRW in alimony in the divorce lawsuit, may not welcome the reduction of his assets due to rebalancing. Some speculate that Chairman Chey will refrain from CEO personnel changes until the end of the year. This is interpreted as a sign that he feels burdened by the sudden rebalancing.